Vanguard merges target-date series, lowers fees

Vanguard Group on Tuesday announced several changes to its target-date funds, which the company said will provide defined contribution participants with greater access to — and lower costs for — these investments.

Vanguard will consolidate the investment lineups of its mutual fund-based target-date series — Vanguard Institutional Target Retirement Funds and Vanguard Target Retirement Funds — through a merger that is scheduled to be completed by February 2022.

As of Aug. 31, the institutional-priced series had $382.4 billion in assets under management and the investor-priced series had assets of $283.8 billion, Carolyn Wegemann, a Vanguard spokeswoman, wrote in an email.

The merger is expected to reduce the overall expense ratio to 8 basis points. The investor share-priced expense ratio has been 12 basis points, while the institutional expense ratio has been 9 basis points, she wrote.

"They follow the same glidepath methodology and asset allocation," Ms. Wegemann wrote. "The investment objective, strategies, policies, and overall portfolio management once the funds merge will remain the same."

The merger of the funds also is expected "to reduce operational complexities for plan sponsors and intermediaries and result in additional portfolio management and operational efficiencies, as well as economies of scale, which may result in additional cost savings for investors over time," Ms. Wegemann added.

For 401(k) sponsor-clients, Vanguard will cut the required minimum investment to $100 million from $250 million for its Vanguard Retirement Trust II program, a target-date series based on collective investment trusts.

Vanguard offers five collective investment trust-based target-date series. Ms. Wegemann, declined to provide details about the other four. As of Aug. 31, assets under management was $504.9 billion for all five, but she wouldn't provide an AUM figure for Vanguard Retirement Trust II.

The CIT-based target-date series are unaffected by the merger of the mutual fund-based series.

Vanguard on Tuesday also added a new CIT-based target-date series called Vanguard Target Retirement Income and Growth Trust. It is now available to eligible defined contribution plans.

"The new trust's higher (50%) equity allocation in retirement is intended for participants whose wealth, risk tolerance, and/or additional sources of income allow for higher discretionary spending in retirement," Vanguard said in a news release.

"The new trust is designed to be an opt-in alternative to the lower equity allocation (30%) of Vanguard Target Retirement Income Trust — most appropriate for participants whose primary investment objective is stable inflation-adjusted income to cover basic living expenses," the news release said.

As participants approach age 65, Vanguard will provide them with "tools and guidance to help them determine which trust option best suits their needs," the news release said. The goal is to "enable more participants to remain in their 401(k) plan upon retirement and continue to benefit from institutional pricing and fiduciary oversight."